Thursday, November 23, 2017

Think Strategically: Ice-Cold Sushi for Breakfast

By on October 30, 2017

U.S. House passes budget, puts tax reform in fast lane

President Trump and the Republican-led Congress moved to transform the obsolete tax code, positioning the effort into the fast lane this past Thursday, Oct. 26, when by a thin margin, the House approved a budget blueprint that would allow a tax bill to pass Congress without any Democratic votes.

House Republicans are expected to publicly release their tax bill by Nov. 1. This highly anticipated legislation should reveal all the details that most tax experts have been predicting for months.

Washington sources indicate the House Ways & Means Committee may advance the bill by the week of Nov. 6. As a matter of reference, the last Tax Reform, in 1986, took the House 26 days to push through. We should expect similar timeframes with the present effort. The full House may bring the bill to a vote by the week of Nov. 13. Like all things with Congress, this process will be intense and fast-paced.

In the Senate, leaders interviewed have stated the bill could be presented, debated and approved by both chambers by the end of November, allowing a crucial part of the President’s promises to clear Congress.

The reality is that it will be a complicated process for all, in terms of votes and total tax revenues. There is already talk that high-tax-rate states would benefit more from several tax breaks that are in the works. Another issue open for discussion are reductions in contribution limits to 401(k) plans. However, in a presidential tweet, Trump stated, “There will be no change to the way 401(k) plans are taxed.”

Do we think the Tax Code needs revamping?

We must create a tax code that will boost job creation, allows for increased investment and prepares the bases for the next cycle of wealth to be built—all while simplifying the Tax Code.

There is still much to happen before this becomes the law of the land.

U.S. House, Senate & FEMA investigate Whitefish Energy contract

As reported by most national media outlets, several House and Senate committees will investigate how Montana-based Whitefish Energy Holdings was awarded a $300 million contract to rebuild Puerto Rico’s electric grid.

The Puerto Rico Electric Power Authority (Prepa) awarded the contract to Whitefish Energy to restore transmission and distribution lines damaged or destroyed during Hurricane Maria. In a statement, the Natural Resources & Energy Committee requested all documents about the contracting of the two-year-old company that only had two full-time employees when the storm hit last month, and allegedly its largest contract had only been for $1.3 million. Among Whitefish’s investors is the Dallas-based HBC Investments LLC. Joseph Colonnetta, founder & general partner of HBC, is a backer of President Donald Trump. Colonnetta donated $5,400 to Trump’s campaign and $14,600 to the Republican National Committee.

We researched the world’s top-50 electrical contractors and found no trace of Whitefish Energy in the rankings. With Prepa’s extensive expertise in the field, the public corporation surely must know the best and brightest companies in this area. In addition, there is the American Public Power Association (www.publicpower.org), with more than 450 members, of which Prepa is listed. The organization’s benefits include providing mutual aid, which Prepa chose not to activate. We may conclude that Prepa was in Title III bankruptcy, with little or reduced access to liquidity. However, this does not mean Puerto Rico must choose from contractors with little or no workforce and limited resources. Included is a list of the top-eight companies ranked by revenue so you may draw your own conclusions.

 

Rank Name Headquarters Revenue
1 Quanta Services Houston, TX $4,900,000,000
2 Rosentin Electric San Jose, CA $1,959,285,000
3 EMCOR Group Norwalk, CT $1,707,142,899
4 MYR Group Rolling Meadows, ILL $1,142,000,000
5 Pike Electric Mount Airy, NC $   870,000,000
6 Henkels & McCoy Blue Bell, PA $   784,128,000
7 Cupertino Electric San Jose. CA $    763,205,000
8 MMR Group Baton Rouge, LA $    705,000,000

Prepa’s due diligence, evaluation and analysis, which usually have been very thorough in selecting this or any company, were at best flawed. How, then, could Prepa and, ultimately, the Government of Puerto Rico choose a company with clearly little or no expertise, a limited workforce and minimal knowledge of the job be awarded a no-bid contract for $300 million? We support startups and helping them grow, but a $300 million contract with a clear lack of experience and the workforce capacity to do the job is not the route.

As Puerto Rico fell into darkness after Hurricane Maria devastated the island, and we sought help and support from the U.S. Government, President Trump, House Speaker Ryan, Vice President Pence and other leaders came to support our rebuilding efforts. With federal assistance and support also came an enormous responsibility to make sure we adequately and responsibly use all funds.

The Federal Emergency Management Agency is investigating the $300 million contract to rebuild Puerto Rico’s power grid, a no-bid award that has been criticized by Congress and spotlights the agency’s record of “policing” similar grants.

Whitefish had been tasked to lead the rebuilding of Puerto Rico’s electrical grid with the expectation the money would come from FEMA.

“FEMA has significant concerns with how Prepa procured this contract and [that the public corporation] had not confirmed whether the contract prices are reasonable,” FEMA said in a statement.

FEMA also noted that it has not reimbursed Puerto Rico for the contract and that it can withhold payments if procurement procedures were not followed.

This self-inflicted wound to the Government’s credibility—not just to Prepa and the entire Government including the Governor—happens during the worst possible moment. We find it improbable that La Fortaleza was not aware of this contract since the Governor had issued an Executive Order doing away with the Government’s typical purchasing process. Thus, La Fortaleza must have been vigilant about all contracts awarded.

During usual circumstances for any company, foreign or local, to obtain a meeting with the heads of public corporations is at best a challenge. In this case, with few or no phones, no power, email or other regular business communication tools, Whitefish’s local and stateside advisers must have had a direct line of access. In due time, all that transpired will come to light.

With all this controversy surrounding this contract and apparently little room to defend Whitefish’s selection, the Governor requested Prepa’s board immediately cancel the contract.

FOMB Acts: Chief Transformation Officer for Prepa

The Financial Oversight & Management Board (FOMB) announced its intent to appoint Noel Zamot as Chief Transformation Officer for Prepa.

A retired Air Force colonel from Puerto Rico, Zamot shall lead Prepa’s transformation and rebuild the electricity sector following the devastation from Hurricane Maria. Zamot has been instructed to fast-track reconstruction efforts with coordination with the Government of Puerto Rico, the FOMB and the federal government.

Natalie Jaresko, Executive Director of the FOMB, stated, “The appointment of Noel [Zamot] is an essential step in achieving the goals of reliable, competitively priced electricity and attracting the private capital we need to revitalize the economy of Puerto Rico.”

During most reorganization cases with a debtor in possession, it is common to name a chief restructuring officer to efficiently manage the entity while it is in bankruptcy, and this situation with Prepa is no different.

Zamot served 25 years, in active duty, with the U.S. Air Force, including management of energy and infrastructure projects. As a private-sector executive, he also provided engineering expertise to the Defense Department.

We must not forget that Prepa has been operating as a covered entity of the FOMB, and it must not surprise anyone that they took this action with or without the Hurricane.

Final word—The human element: Paciv Foundation

As the past 39 days have gone by, the lives of most Puerto Ricans have been turned upside down. Many have lost all they had, and more also lost their Jobs. With nearly 70% of Puerto Ricans who work being paid an hourly wage, having their business close or operating with limited hours, is a significant impact. As reported by the news media, with as many as 5,000 small businesses closing, this will have an immediate effect, with thousands more losing their jobs.

Rather than dwell on what is wrong, let’s discuss all that is going right. We have seen Jorge L. Rodríguez, CEO of Paciv Inc. and Paciv Foundation, become the angels in the middle of this tragedy for many patients who needed critical care in the USA. Paciv is the acronym for: Process Automation—Controls. Instruments. Validations.

Paciv Foundation, its CEO and a loyal team have impacted 110 lives, saving 32 patients and more than 300 family members whose have been changed for the best. What started as the Diego Relief Project includes a team that includes:

Justo O. Moreno, William A. Medina, Macar Garrote-Arango, Francisco J. García, Fermin L. Arraiza and, of course, Jorge L. Rodríguez.

The latest recipients are a couple from Vega Alta who were taken to Deland, Fla., to seek the best medical assistance. Jorge and his team have been vigilant and determined to make a difference in the lives of those who could not defend themselves. Jorge’s drive and vision have dramatically altered the lives of these Puerto Ricans, who weren’t able to fend for themselves. Jorge exemplifies the values instilled in him by his parents, who came to Puerto Rico in 1964 from Asturias, Spain, to offer a better life to their children. Jorge’s parents left everything behind—parents, sisters, uncles and friends—to raise their family and educate all of Jorge’s siblings while offering them a better life. I know that Jorge’s Mom, Esther, and his No. 1 fan is very proud.

We all owe a debt of gratitude to Jorge and his team for going above and beyond the call of duty; for them, our heartfelt admiration.

If you want to know more about Paciv Foundation and their efforts, go to Facebook @PACIVFoundation.

–Francisco Rodriguez-Castro is the president & CEO of Birling Capital Advisors LLC

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